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Jockeying for Positions
By Jon Nadler

The US dollar was mostly higher (84.82 on the index at last check) following the historic win by Barack Obama in the US Presidential elections. In historical terms, the greenback could well be poised for further gains - especially in the coming year. The currency received a post-election boost all but twice following US elections, and has, in addition, recorded a 23% loss on the trade-weighted index during the years of the Bush administration - thus adding to the odds of a further rise. President-elect Obama's first task might well be the assembly of a strong economic team whose mission will be to extricate the nation from the economic slump it finds itself in, while trying to avoid subsequently costly policy mistakes.

Clearly, with the expectations bar being as high as it currently is, some disappointments will no doubt be experienced, and some pain will need to still be endured before conditions improve. At any rate, America's first African-American President will be far better equipped to handle global issues once some kind of overhaul of the domestic situation is achieved. The work to be done is staggering, and Mr. Obama and his eventual team will not be able to pull the task off single-handedly. It will require the joint efforts of practically everyone who cares about what shape the future takes.

Oil (down $1.50 at $69) and gold gave back some of yesterday's gains overnight and while stock index futures pointed higher earlier, the stark reality of US economic conditions once again took over on the list of preoccupations that hangs in front of trading stations and individual 'where to invest' lists. Notwithstanding the November 15 world summit to fix the credit crisis and its fallout, team Obama might begin placing its marks on things well before inauguration. For example, the probability that a second stimulus package could be launched following the return to work of a largely Democratic Congress in just two weeks. All of this, before the big-ticket items such as energy, health care, and public works come to the forefront.

New York precious metals trading opened with further losses this morning, following last night's profit-taking in the wake of Tuesday's rallies. Spot gold was off $6.00 at $755 as participants were still gearing up for Friday's employment (or rather, the lack thereof) numbers. US jobs (157,000 lost in Oct. says ADP) were being shed at a nearly 80% higher rate than one year ago in the same month, as the financial and automotive sectors went from bad to worse. Job losses are on track for a monthly loss rate of about 100,000 to 200,000 positions - a number that (at least) matches those experienced in the contraction of 2001.

Silver was ahead by 4 cents at the open, quoted at $10.21 per ounce. Platinum rose $24 to $867 and palladium gained $3 to $211 as the complex tries to regain its footing from apparently oversold levels. Housing prices in the US still appear to be only halfway into their price correction - a fact that continues to derail financials and materials. GMAC and GM face a dwindling sand clock and are adding to the caution being witnessed in the PGM group metals.

The stock market lost 6 trillion dollars of value this year and has thus far not shown too many signs of having bottomed. Under such poor conditions, commodities may well take the a two or so year breather and either try to form a base or decline to somewhat lower levels. Economist Dennis Gartman, appearing on Bloomberg Television early this morning, said that he believes the equity markets will continue to rebound, albeit the worst has not yet been seen in the US economy.

He has started to buy a "little copper and steel" and feels that crude oil will still be heading a lot lower in the medium-term. Lower oil equates an 'easy tax cut' for the new President, in addition to a $300 billion stimulus package he hopes Mr. Obama will fire off. Mr. Gartman also says that the 'safe' thing to do at the moment - as regards gold - is to remain on the sidelines, and let others "try to trade it."

Mr. Gartman said that he could make a case for both gold price scenarios (up/down) at this time, but while he has been bullish on gold in past months, at the end of the day (today), he remains uncertain about the metal's immediate price prospects. Having failed just short of the $800 level late last month, gold still faces headwinds that are not to be taken lightly. Traders we spoke to while in NY, feel that the price risk is still to the downside, and that they are seeing investment coin and bar supply levels improving, and premiums coming down. Ditto, silver - which appears to find more buyers under $10 than above it.

We leave you now with Marketwatch's David Callaway, and his laundry-list of proposed Mr. Obama 'To-Do's' as he prepares to take office in January:

"Has it really been eight years? Eight years since that fateful Election Night when we all stayed up as long as we could through the dark hours without a president, only to wake up to some of the darkest years in our American history.

If we've learned one collective lesson, it's to never again say "How bad could it be?"

That's why the sense of hope that swept Barack Obama into the White House on Tuesday night could be felt around the world, from the celebrations in Kenya about how one of its descendents could be the first black man elected U.S. President to the parties in Europe, Asia, and around America herself.

At a time when everything looks so grim, the temptation to grasp at any hope is too good to resist. Obama offered that hope, and largely because of the economic crisis of the past several weeks, he was rewarded with an electoral landslide.

A furious rally on Wall Street helped kick off the Obama victory Tuesday, but as the President-elect will soon learn, Wall Street is a fickle mistress. He inherits a set of challenges not seen since FDR: a broken financial system, an ailing infrastructure, a growing environmental crisis, an economically-thrashed public, and two wars.

No president, even with an overwhelming majority in Congress like Obama will have, can ever hope to solve all of this. But progress can be made on all fronts. Indeed, just turning in the right direction on some of them would be a success.

On the economy, though, voters expect results.

Obama must solve a financial calamity that requires billions of dollars in spending that the U.S. doesn't have.
He must address a nation that feels overtaxed, yet is in desperate need of funds to save companies, jobs and homes.
The President-elect must realign a broken financial regulatory system without adding a crippling new set of regulations.
He must restore confidence in America's economy in a world that just got sucker-punched by an exported credit crisis that is causing a global recession.
He must pick a Treasury Secretary under the greatest global scrutiny a President has ever seen, not to mention cabinet posts for Defense, Environment, and even Trade that will take on strategic importance far beyond their historical legacies.
Most importantly, he must enact as many of the vital social programs as he can while also cutting the national debt and budget deficit.
All of this is a high-wire act to be sure. Obama will face wealthy and powerful opponents who will make beating John McCain seem like an Election Day basketball lay up. Inaction is what Washington thrives on. It's no coincidence that the stock market does best when the government is split between the political parties. This is exactly what Obama can't afford in his first 100 days, or even his first year in office.

After eight years of fighting as the loyal opposition and two years of campaigning for this historic win, Obama and the Democrats will finally get their chance to prove their case. That they will benefit from an economic recovery at some point in the next four years is a given. And the stock market has fallen so much that it no doubt will also recover at some point in a first Obama term. So will commodities, and even the recently resuscitated dollar.

As he faces the nation in January on Inauguration Day, 76 days from now, Obama will carry the hopes of several previously overlooked constituencies -- blacks, Latinos, youths, foreigners, the jobless and homeless and health-care-less -- along with Wall Street, the rich and comfortable, and even the opposition. The one thing that unites all of these constituencies is economic progress.

No doubt his speech will be soaring and inspiring. But once he has made it to the White House, his actions will be measured far more than his words. This historic election will be a milestone in American politics. But Obama's real place in history will measured by whether he actually has the chops to reform and rebuild an economy -- the largest in the world -- gone horribly and irrevocably awry."

Let's watch for post-election punditry and team-building. Names such as Paul Volcker have been floated this morning (by none other than Steve Forbes). Who knows? Mr. Forbes opines that the Bush administration's biggest mistake was to sacrifice the US dollar's value.

Keep trading lightly as conditions remain nebulous. Safely disregard prognostications that involve the words "for sure" and "no doubt."
 



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